There are several interesting aspects to this deal, and I’ll touch on a few of them briefly.

First off, Dell is paying dearly, quite literally, for 3PAR. The acquisition price represents an 87-percent premium on 3PAR’s closing stock price last Friday. That sort of acquisition premium is a blast from the past, taking us back to the days of wine and roses in Silicon Valley, when slick spivs cut wild M&A deals with blistering frequency and reckless abandon. It harkens back to a time when men such as Frank Quattrone bestrode the Valley like mythical colossi.

Party Like It’s 1999

Wait, what’s that? Frank Quattrone was on the sell-side of the Dell-3PAR deal, ensuring that his client got fair value for its technological wares? Then I suppose it’s deja vu all over again. For one day, at least, Quattrone and his merry band of investment bankers can pretend that we’ve gone back to a more salubrious time, when the next big transaction was, in more ways than one, right around the corner.

Let’s give Mr. Quattrone his due, though. If he got aboard the time-travel machine and went back to the late 90s, he got his Dell counterparts to make the journey with him. They certainly whipped out their rolls of cash like drunken brokers . . . well, never mind. Let’s not go there.

All things considered, however, I’m surprised Dell paid such a rich price for 3PAR. Dell must have thought it was a necessary measure, for whatever reason. Perhaps Dell was convinced that another company — HP, for instance — was competing for the deal. It would be good know what precipitated the preemptive strike. (Even though the deal seems rich by today’s standards, not everybody associated with 3PAR is pleased with it, much to the delight of litigious lawyers — are there any other kind? — everywhere.)

Dell and EMC Part Ways

My second observation is that the 3PAR deal, no matter what Dell says publicly, suggests that its reseller relationship with EMC is in serious trouble. It’s been a fraught relationship for a while now, and Dell must have concluded that the prognosis wasn’t good. Rather than wait for the inevitable acrimonious divorce, Dell decided to throw down the gauntlet and start the recriminations early. If you’re going to go to war you might as well fire the first salvo.

In the end, I suspect Dell felt it could not compete with Cisco for EMC’s affections. That probably was an accurate assessment. With EMC about to be kicked into touch, Dell needed an alternative for its high-end storage customers — something it could control and own — and 3PAR was an obvious choice.

Dell’s Valley Presence

Finally, as 3PAR’s Marc Farley wrote on his StorageRap blog, Dell apparently will leverage 3PAR’s location as well as its technology. The thinking is that Dell will expand both the business and the engineering teams at 3PAR’s headquarters in Fremont, California. Many, including Farley, believe it’s long past time for Dell to raise its profile in Silicon Valley.

I understand the reasoning behind Dell’s 3PAR acquisition. I see how it fills a hole in Dell’s product portfolio while also providing an integral element in Dell’s vision for data-center storage and cloud computing. That said, I’m still feeling a bit of sticker shock looking at that price tag, and I’m not even a Dell shareholder.

At times, like any CEO pitching to the press, Kennelly shucks, jives, spins, and postures. He’s selling his company, delivering a marketing message, and trying to accomplish his media mission. Like other CEOs, he wouldn’t be doing the interview unless he and his company thought it could serve a practical purpose.

Bright Prospects

The overall message Kennelly delivers is that business is good for Riverbed, that it has a defensible leadership position over Cisco in WAN optimization, and that it foresees robust growth and bright prospects for years to come. Kennelly supports his optimistic outlook with carefully reasoned arguments, pointing to technology and business trends, such as data-center consolidation and virtualization, that play to Riverbed’s strengths.

I think he does particularly well explaining how and why Riverbed has been able to outperform Cisco at the upper reaches of the OSI protocol stack. At one point, he mentions that Riverbed is not alone in that regard. He notes that just as F5 Networks gave Cisco a beating at Layer 4-7 application traffic management, Riverbed did likewise in WAN optimization. It’s a an accurate observation, and it makes one wonder about what Riverbed and F5 might be able to accomplish together as technology and economic trends continue to furnish each company with growth opportunities.

Wall Street’s Built-In Protection

But the two companies are unlikely to get together, for reasons Kennelly cites late in the interview. As he says, not only is Riverbed not seeking to be acquired, but it’s also a company that the market has afforded with built-in protection against acquisition.

We’re actually somewhat protected by Wall Street because Wall Street shares the vision of Riverbed and has awarded us a strong earnings multiple on our stock price. It’s one of the top multiples. The type of people who would acquire you are the larger, slow growth companies, big technical companies. We’re a high-growth, high-multiple company. They’re all lower growth, low-multiple companies. It’s actually dilutive for them to try to do an acquisition of us. So we have some protection on that front of things. We desire to be a standalone, independent company for a long time, and I think we’re best served by that.

Indeed, Riverbed has a market capitalization of approximately $2.5 billion. It’s board would insist on a rich acquisition premium, so any buyer probably would have to part with a minimum of $4 billion to complete the deal. Some big, slower-growth, lower-multiple companies — and I could think of one or two — might be willing to consider such an arrangement, but growing, high-multiple F5, with its market capitalization of $6.8 billion, probably wouldn’t attempt to digest a meal that rich.

No Need for Private-Cloud Garnish

Where Kennelly slips in the interview, and it isn’t a fatal indiscretion by any means, is when he tries to invoke the ambiguous private cloud where it doesn’t belong. He explains, correctly, that Riverbed’s growth is being driven by data-center consolidation. Then, however, he suggests that data-center consolidation is a proxy for the private cloud, which, in Kennelly’s reasoning, leads ineluctably to the public cloud. Here’s the relevant excerpt:

Again, these data center consolidations are a proxy for private cloud computing and then public cloud computing. The genie’s out of the bottle on that. It’s not going back. The ability to connect at the application layer across networks is going to be a permanent requirement of everyone.

The interviewer rightly questions this doubtful syllogism, and Kennelly immediately retreats, waving the whole thing off with the following comment:

Either way, we get their business, whether they do it in the cloud format or in a very traditional corporate data center format. But yeah, I take your point. I’m not trying to push the cloud by the way.

Okay, maybe he wasn’t trying to push the cloud, but it definitely seemed that he was willing to take it for a marketing spin. From the tone and substance of the interview, it appears Riverbed’s marketing mavens must have pressed their CEO to cite the buzzy private cloud at every conceivable opportunity. His heart clearly wasn’t in the puffery, as the remark quoted above demonstrates.

Riverbed doesn’t need to gild the lily. It’s doing well enough without having to resort to buzzword legerdemain.